CENVAT credit on duty-paid inputs allowed where export incentive scheme did not bar duty payment or credit

CENVAT credit was allowable on domestically procured excisable inputs because duty had actually been paid by the supplier, and the advance licence or authorisation scheme did not itself prohibit duty payment or credit. The procedural notification under Rule 19 was not a tariff exemption under Section 5A, so it did not bar availment of credit where duty was validly discharged. The plea that the controversy remained open due to earlier litigation also failed because the prior challenge had already been dismissed, including the further appeal in limine. The appellate challenge was therefore rejected and the order allowing credit and dropping recovery was sustained.

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Issues: (i) whether goods procured domestically on payment of central excise duty could validly be taken as CENVAT credit when they were eligible for procurement without duty under the advance licence or authorisation scheme; (ii) whether the pendency of earlier litigation kept the dispute open so as to justify reversal of the adjudicating authority's order.

Issue (i): whether goods procured domestically on payment of central excise duty could validly be taken as CENVAT credit when they were eligible for procurement without duty under the advance licence or authorisation scheme.

Analysis: The credit was taken under Rule 3 of the CENVAT Credit Rules, 2004 on goods that were admittedly excisable and on which duty had in fact been paid by the supplier. The export-oriented scheme and Notification No. 44/2001-CE (NT) dated 26.06.2001 operated in the field of import substitution and export facilitation, but they did not create a prohibition against payment of duty on domestic clearances or against availment of credit where duty had been validly discharged. The procedural notification issued under Rule 19 of the Central Excise Rules, 2001 was not a tariff exemption notification under Section 5A of the Central Excise Act, 1944 so as to attract any mandatory bar on duty payment or credit.

Conclusion: The assessee was entitled to avail CENVAT credit on the duty-paid inputs, and the objection to such credit failed.

Issue (ii): whether the pendency of earlier litigation kept the dispute open so as to justify reversal of the adjudicating authority's order.

Analysis: The appeal could not survive on the basis that the controversy remained unsettled, because the earlier challenge relied upon by the revenue had already been dismissed and the further appeal had also been dismissed in limine. The premise that the issue was still sub judice therefore did not furnish any basis to interfere with the order under challenge.

Conclusion: The contention that the dispute remained open was rejected.

Final Conclusion: The appellate challenge failed on both grounds, and the order allowing credit and dropping recovery was sustained.

Ratio Decidendi: Where duty is actually paid on excisable inputs procured domestically, credit under the CENVAT scheme cannot be denied merely because the goods could have been obtained without duty under an export incentive arrangement, unless the governing exemption expressly prohibits duty payment or credit.

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